Psychological Aspects of Budgeting: Planning Fallacies, Failures and Flaws Explained by Social Psychology

Behavioral accounting includes psychological findings into accounting theory to anticipate information recipients’ behavior – it deals with the question of how to design the accounting system to persuade recipients to make economically reasonable decisions. So what about the psychological aspects of the behavior of the deliverers of accounting information? A common area of failure in accounting is budgeting. Typical judgment errors in the budgeting process are psychologically constituted, which is not adequately picked up as a central theme in the rational-focused area of accounting. Our main interest is, if frequently observed errors in budgeting can be avoided by considering research findings from social psychology. Using a simple explanatory model, we display unfavorable budgeting situations as vignettes, explain them by commonly accepted findings of social psychology, and deduce implications for budgeting practice.